Tag Archives: joint employer

March 20, 2018

Settlements Reached in Joint-Employer Case That Could Have Affected Franchisors Nationwide

Steven Gutierrez

Franchisor McDonald’s USA LLC has agreed to settle the high-profile labor disputes over whether it is a joint employer with its franchisees. Although the settlement still needs to be approved by the administrative law judge overseeing the litigation, McDonald’s and its franchisees negotiated settlement agreements with the National Labor Relations Board (NLRB) to settle allegations of unfair labor practice charges without admitting liability or wrongdoing. In doing so, McDonald’s avoids prolonged litigation and a potentially adverse decision that would have had sweeping ramifications for franchisors and their franchisees nationwide.

Protracted Litigation Over Joint-Employer Status

In 2012, multiple McDonald’s employees filed unfair labor practice charges against their employer, seeking to improve their working conditions. In 2014, former NLRB General Counsel, Richard Griffin, approved filing dozens of unfair labor practice complaints against the larger franchisor, McDonald’s USA, under a theory that McDonald’s USA is a joint employer of the employees of McDonald’s franchises. By pursing the franchisor, the 2014 NLRB signaled that it was attempting to hold the larger, nationwide entity responsible for treatment of its franchisees’ employees.

McDonald’s USA, along with many restaurant, industry, and employer groups, vigorously objected, arguing that a franchisor is not a joint employer with its franchisees and therefore, cannot be held liable for any labor law violations made by a franchisee. The joint-employer test at the time was based on whether the putative employer exercises direct control over the employees and McDonald’s USA argued that it did not exercise such control over its franchisees’ employees.

In 2015, the NLRB issued its controversial decision in Browning-Ferris Industries that significantly broadened the joint-employer test so that an entity could be deemed a joint employer if it reserved contractual authority over some essential terms and conditions of employment, allowing it to have indirect control over the employees. (See our post here.) Under that expanded test, McDonald’s USA faced higher scrutiny from the NLRB as to whether it was a joint employer and whether it retained some indirect control over the employees of its franchisees.

Due to changes in the makeup of the NLRB under the Trump Administration, as well as a new NLRB General Counsel, the NLRB has sought to reverse Browning-Ferris Industries and return to the former joint-employer test that required direct and immediate control. In December 2017, the NLRB overturned Browning-Ferris in its Hy-Brand decision, only to have to vacate Hy-Brand in February 2018 because new Board member William Emanuel should not have participated in that decision. As a result, the 2015 Browning-Ferris joint-employer test is still the standard used to determine joint-employer status under the National Labor Relations Act.

Leaving The Status Quo on Joint-Employer Status – For Now

By settling these cases, both McDonald’s USA and the current NLRB avoid having to litigate and have a judge rule on whether franchisors like McDonald’s can be deemed a joint employer under the current Browning-Ferris test. Although the Board (and Congress) continue to seek to overturn Browning-Ferris, the McDonald’s settlement will push the issue down the road to another day.

According to the NLRB’s March 20, 2018 announcement, the settlement will provide a full remedy for the employees who filed charges against McDonald’s, including 100% of backpay for the alleged discriminatees. The settlement also will avoid years of potential additional litigation.

Take Aways

Franchisors, staffing companies, and other entities who have some contractual authority or obligations related to employees of a second entity need to use caution to ensure that the second entity complies with all applicable labor laws. With the broad Browning-Ferris test in place, entities with reserved contractual control or indirect control of another entity’s employees may be found to be a joint employer under the NLRA. This could open the door to liability for labor law violations as well as union organization and collective bargaining obligations related to joint employees. If in doubt about your exposure, consult with an experienced labor attorney.

Photo credit: AP2013/Jon Elswick

February 2, 2016

DOL’s New Joint Employer Interpretation Seeks To Hold More Employers Accountable

By Brian Nugent

The U.S. Department of Labor (DOL) issued a new Administrator’s Interpretation (AI) that emphasizes the agency’s intent to apply joint employer status more broadly under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Even though the definition of joint employment under these acts has not changed, the DOL made it clear that it will examine dual employer relationships closely with what appears to be an intent to find joint employer status in more circumstances.

Of course, companies engaged as a “dual employer” generally seek to avoid joint employer status. Being a joint employer in the eyes of the DOL can result in liability for the acts of a client that has the primary responsibility to direct and control employees. This is not a favorable place to be. Temporary staffing agencies and PEOs do not have enough control over workers assigned to a client location to assume such liability. As a result, such companies have worked for years to maintain dual or co-employment relationships that do not constitute joint employment. It appears, however, that the DOL, through the AI, is trying to chip away at such relationships and include more dual employers within the definition of joint employer.

All companies engaged in the business of providing employees to clients or co-employing workers are affected by this AI. As explained in more detail below, it is clear that the DOL intends to scrutinize all “dual employer” relationships more closely and focus on the degree of control over workers as a guide to determine whether a joint employer relationship exists..

The DOL identified the two most likely scenarios where joint employment typically exists. One type of joint employment, referred to as vertical joint employment, is where there is an “intermediary employer”, such as a staffing agency, PEO, or other provider of workers to a client. Where such a relationship exists, the DOL will focus on the economic realities of the relationship to determine whether a worker is economically dependent on two or more employers, and if so, will be inclined to find joint employer status. The second type of joint employment under scrutiny by the DOL is where the employee has two or more separate, but related employers, each benefitting from a person’s work during the same period of time. These scenarios are explained in more detail below.

Vertical Joint Employment

In a vertical employment relationship, it is common for the “intermediary employer” to be the W-2 employer that actually pay the wages and payroll taxes, but does not direct and control the day-to-day activities of the worker. The issue for the DOL as expressed in the AI is whether, based on the economic realities of the employment relationship shared by the intermediary and the client company, joint employment exists between the employee, the intermediary employer and the client at which the employee is assigned to work.

The economic realities test is not new to the FLSA or MSPA. What is new is that in reviewing a relationship for joint employer status, the DOL announced in the AI that it will abandon its prior practice to look only to its joint employer regulations, and focus exclusively on the economic realities factors in vertical employment scenarios. This is not necessarily bad news, but it is significant.

Under the economic realities test, the degree of control exerted by a person or entity over the workers is only one of the primary factors in a joint employer analysis, and is not definitive. Other economic realities factors the DOL will consider “in the mix” include:

Does the other employer direct, control, or supervise (even indirectly) the work?
Does the other employer have the power (even indirectly) to hire or fire the employee, change employment conditions, or determine the rate and method of pay?
Is the relationship between the employee and the other employer permanent or long-standing?
Is the employee’s work integral to the other employer’s business?
Is the work performed on the other employer’s premises?
Does the employer perform functions typically performed by employers, such as handling payroll, providing workers’ compensation insurance, tools, or equipment, or in agriculture, providing housing or transportation?
Does the employee perform repetitive work or work requiring little skill?

The DOL also identified industries where it believes vertical joint employment relationships are common, and as a result, under increased scrutiny. These industries include “agriculture, construction, hotels, warehouse and logistics” as well as other industries that regularly use staffing agencies or subcontracting intermediaries.

Horizontal Joint Employment

According to the DOL, the so-called horizontal joint employment relationship exists where multiple employers who are sufficiently associated with each other both benefit from the individual’s work, such as where two separate restaurants have the same ownership and jointly schedule an employee to work at both establishments. The factors to consider when analyzing this type of joint employment include:

Who owns or operates the possible joint employers?
Do they have any agreements between the employers?
Do the two employers share control over operations?
Do the employers share or have overlapping officers, directors, executives, or managers?
Does one employer supervise the work of the other?
Do the employers share supervisory authority over the employee?
Are their operations co-mingled?
Do they share clients or customers?

The DOL stresses that it is not necessary for all, or even most, of these factors to exist in order to find joint employment status between two or more related employers.

NLRB Focus On Joint Employers

The National Labor Relations Board (NLRB) has also been expanding its use of joint employment status to hold companies liable for violations of the National Labor Relations Act. Although the DOL stated in a recently issued Questions and Answers document that its joint employment analysis is different than that used by the NLRB, reports suggest that the office of the Solicitor of Labor reached out to the NLRB’s General Counsel on the issue of joint employment in advance of issuing the new Administrator’s Interpretation. It is clear that both agencies are focused on a broad application of the joint employer doctrine.

What Does This Mean For Employers

If joint employment is found, both entities may be held responsible for compliance with all applicable laws, including wage and hour and other employment protection laws. This includes making sure non-exempt employees are paid minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek. For employers covered by MSPA, both employers are liable for ensuring necessary disclosures of the terms and conditions of employment, and payment of wages are made, as well as maintaining required written payroll records. A joint employer could also find itself named as a co-defendant in a tort liability suit brought against the “primary actor” employer.

Joint employment also applies for determining eligibility and coverage under the Family and Medical Leave Act (FMLA). This is critical as smaller employers with less than 50 employees may think they are free of any FMLA obligations, only to find that they meet the coverage threshold if they are deemed to be a joint employer with another entity, such as a staffing agency that provides them with additional workers. Similarly, joint employer status could affect compliance under the Affordable Care Act.

In light of this new guidance and the emphasis by the federal government on broad application of joint employment, staffing agencies, PEOs, and their clients should examine their relationships, including but not limited to, the degree of control, supervision, termination rights, setting of pay rates, and provision of tools, training, and policies exerted by the client company. The higher the degree of control and reservation of rights over the workers, the higher the chance that a joint employment relationship will be found. This also means that clients may ask staffing agencies to provide additional information about their compliance with applicable laws so as to gauge their level of risk. In fact, compliant staffing companies that are violation-free may see that as a marketing point in the future.

In the end, if employers comply with applicable laws, joint employment need not come into play. It is only when compliance takes a back seat and government investigators arrive at the door, that companies need to worry about whether they are a joint employer.

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August 28, 2015

NLRB Throws Out Years of Joint-Employer Precedent – Adopts Two-Part Test For Joint-Employer Status

By Brian Mumaugh

The National Labor Relations Board (NLRB or Board) has thrown employers a curve by overruling 30 years of long-standing decisions that narrowed the circumstances under which a joint-employer relationship could be found to exist. In a closely-watched decision, the Board revised its joint-employer standard, dictating a broader two-step test that will result in entities that use contingent workers more likely being deemed joint employers for union representation purposes. Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015).

Two-Part Joint Employer Test

In its 3-to-2 decision, the Board reaffirmed a 1982 joint-employer standard under which the Board will find that two or more statutory employers are joint employers of the same employees if they share or codetermine the essential terms and conditions of employment. First, the Board will determine whether the putative employer has a common-law employment relationship with the employees in question. If that relationship exists, the Board then will determine whether the employer possesses sufficient control over the employees’ essential terms and conditions of employment to permit meaningful collective bargaining.

Employer Need Not Exercise Control Over Employees

Over the past 30 years, joint-employer cases have defined the degree of control that an employer must assert over the workers to be deemed a joint employer. Those cases, including Laerco and TLI, required that the putative employer actually exercise control over the terms and conditions of employment to be deemed a joint employer. In addition, exercising that control had to be direct and immediate, not of a limited and routing nature. Simply possessing the authority to exercise control, without actually exercising that control, was not enough under long-standing Board law.

That requirement is now gone. The Board ruled, in Browning-Ferris, it will no longer require that a joint employer exercise its authority to control the terms and conditions of the employees’ employment. The proper inquiry will be whether the statutory employer “possesses sufficient control over the work of the employees to qualify as a joint employer with” another employer. In addition, control exercised indirectly, such as through an agent or intermediary, may be sufficient to establish joint-employer status.

BFI Deemed A Joint Employer With Temp Agency

After articulating its revised test, the Board applied it to the BFI case at hand. The case arose after a union sought to include certain workers at the BFI Newby Island Recyclery in a bargaining unit during a union election. The workers were employed by Leadpoint Business Services, a temporary labor services agency, and were assigned to work at BFI’s recycling plant as sorters, screen cleaners and housekeepers. The contract between BFI and Leadpoint specifically stated that Leadpoint was the sole employer of the workers and there was no employment relationship between BFI and those workers.

The Board concluded that BFI was a joint employer of the workers with Leadpoint. Contributing factors leading the Board to determine that BFI is a common-law employer and shares or codetermines essential terms and conditions of employment include:

BFI retained the right to require that Leadpoint meet or exceed BFI’s own standard selection procedures and tests, requires drug tests and prohibits Leadpoint from hiring workers deemed to be ineligible for rehire by BFI;
BFI retained the right to reject any worker that Leadpoint refers to its facility “for any or no reason” and to discontinue the use of any personnel that Leadpoint assigned to it;
BFI managers had requested the immediate dismissal of certain workers due to misconduct and Leadpoint dismissed them from BFI’s facility shortly afterward;
BFI controlled the speed of the material streams and specific productivity standards for sorting;
BFI managers assigned specific tasks that need to be completed, determined where workers are to be positions and exercised near-constant oversight of workers’ performance;
BFI identified the number of workers it needs, the timing of the shifts and when overtime is necessary, even though Leadpoint selects the specific employees who will do the work;
Despite Leadpoint determining pay rates, administering payroll and benefits and retaining payroll records, BFI prevented Leadpoint from paying employees more than BFI employees in comparable jobs and used a cost-plus model under the contract;
After a new minimum wage law went into effect, BFI and Leadpoint entered into an agreement for BFI to pay a higher rate for the services of Leadpoint employees.

As a result of finding that BFI was a joint employer of these workers, the Board ordered the Regional Director to open and count the impounded ballots cast by the employees in the petitioned-for unit. If the employees voted for union representation, BFI will have to collectively bargain over the terms and conditions of employment over which it retains the right to control.

Implications For Employers

The Board seeks to prevent companies from insulating themselves from the application of labor laws by using temporary or other contingent workforces and this new standard will further their goal. This new, broader standard for joint-employer status will make it easier for unions to include contingent workers into bargaining units at the facilities for which they are providing services. In addition, as pointed out by the dissent, this change “will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts and picketing.”

If your organization uses contingent workers, you should review your existing labor services agreements and, to the extent possible, renegotiate any terms that reserve your right to control the terms and conditions of the contingent workers’ employment. You also should attempt to eliminate any functional oversight and decision-making to ensure that you are not exercising any control, whether directly or indirectly, over the contingent workers. The reservation of the right to dictate any terms or conditions of employment, or the actual exercise of that control in any way, is likely to lead you to be deemed a joint employer of those workers.

We will keep you posted of further developments, including any appeals of this decision.

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